Market Overview

In 2002 Russian fixed BBA market has started its operation in private sector; the number of users at the time was only several thousand households (HHs). Market launched active growth stage in 2007 and after 7 years (in 2014) we can see the transition to the maturity stage and gradual saturation.

According to J’son & Partners Consulting’s preliminary estimations, in 2014 the number of HHs with fixed BBA to the Internet was 29.7 mln, that is 5% increase in comparison with 2013. Penetration of services has reached 53.6%. According to the preliminary J’son & Partners Consulting’s results, in 2014 Russian BBA market in the private segment increased for 4% - up to 110 bln RUB.

Following factors will influence the continuous market growth:

Extensive increase of coverage and development of data communication networks;

Increasing number of devices and theirs variety in home segment (PC, notebooks, netbooks, tablet PCs, set-top-box), as a result – growth of needed band per 1 HHs;

Key market factor, which will provide the growth of subscribers, is an extensive expansion of medium and large internet providers’ coverage in small cities.

SpaceX and Virgin Galactic are planning to create a network from 4000 micro satellites for provision of BBA Internet access all around the world. This method will allow to cover those parts of planet, where terrestrial network infrastructure is not developed, but there is a necessity in Internet access. Nowadays, modern satellite technologies cut the costs on deployment and low sized satellites can be launched by dozens simultaneously.

Increasing number of devices per family and their variety require wider band for comfortable use of BBA service. Due to this, we can see the active distribution of optical technologies during construction of data transfer networks (apartment FTTH, building FTTB etc.). Nevertheless, there is a continuous progress in improvement of access technologies by copper wires.

Several companies presented their innovations allowing to increase DSL speed till 1GByte per second in 2014. Among them were Broadcom, Chinese Triductor Technology and Israeli start-up Sckipio. These DSL technologies’ developments got the common name – G/Fast and will allow to prolong the “life of copper pairs”.

It is worth to mention that the development of mobile communication networks – LTE technology, is yet do not have such a major influence on the development of fixed Internet access, this technology is mainly distributed in regional centers and more likely is a supplement to the necessity in high Internet outside the house.

ARPU BBA will be stabilizing further, now providers are using the principle: more Internet for the same price. There are no talks about decreasing costs per tariff, instead of this operators increase the access speed. Operators are still focusing on special of tariffs and package offers, which are practically decreasing the cost of services separately, but save operators’ revenue in general. As a result, BBA ARPU by 2016 will drop till 310 RUB per month. Yearly growth of BBA HHs connections’ will be the key factor for market growth.

J'son & Partners Consulting’s forecast: Fixed BBA subscriber growth will be at the level of 2-3% per year during 2 coming years and by 2016 this number will reach 31.4 mln. Market volume will also grow for 2-3% due to the increase of subscribers, the ARPU will be stable in the amount of 310 RUB per month.

Qualitative changes are in process despite the stabilization of quantitative market indicators. The growth of number of devices and their variety, cloud services require broader capacity for access channels. In this case, tariff plans include more services, and in total decrease their cost.

It is impossible to erase the beginning of cable BBA competition with mobile communication of 4th generation (LTE) and satellite communication in small cities and remote regions. Satellite two sided Internet tariffs in such regions are close to tariffs of cable BBA. For example, in Kamchatka region, they are still on one level by subscriber fee and access speed.

Competitive Situation

In general, TOP5 Market leaders control 2/3 of the market: by subscribers (66.2%) as well as by revenue from BBA services (69.0%). Rostelecom is an implicit market leader with market share by subscribers and revenues of 35.1% and 38.7% accordingly. Others minor players’ shares are step by step decreasing. ER-Telecom (with share of 9.7%) and VimpelCom (8.5%) close Top 3. By revenue from BBA services, ER-Telecom took second place, by the end of 2014, VimpelCom – third with 8.8% share. There were no structural changes in the rating in 2014.

It is important to note that VimpelCom’s subscribers’ base showed growth last year, despite the fact that cities, where company stopped the provision of cable BBA services, are excluded from the data.

Rostelecom has a leading position by absolute growth rate of subscribers’ base – 610 thousand subscribers for 2014. Transtelecom and MTS took second and third places by this category and increased theirs’ subscribers’ base for 170 and 160 thousand subscribers accordingly.

BBA Market – Key Trends for Medium Term Perspective

Increasing share of package offers in the number of new connections of telecommunication operators. BBA market is more and more intercrossing with neighboring markets (Pay TV, Telephony). At the moment operators are trying to provide complex offers to subscribers: package offers in order to satisfy all subscribers’ needs, and to increase operators’ revenue per 1 client.

With the growth of package offers shares in operators’ sales, the question how they record income of such contracts, is becoming more and more important. The survey of TOP5 operators, conducted by J'son & Partners Consulting showed that operators don’t have a unified method for recording of package tariff plans.

Providers use the following recording methods:

Direct classification of services’ costs, which is stated in the contract with subscribers

Proportional division of package costs by cost on mono services

Classification of costs based on billing and financial records

Operators put quality services and increasing customer loyalty as top priorities for them

European trend on the market is an increasing customer loyalty via free additional services. Deutsche Telekom and BT provide free services of “parental control” and cloud space for data storage if you connect package offer. In Russia such services are mostly paid even in package tariff plans. Besides, tariff contracts abroad usually with duration for 12 or more month, and this is also helps to constrain the subscribers’ churn.

Development of services such as «triple play» and «quadro play» (Internet, TV, telephony and cellular communication) and development of one invoice per all services, which will cover several devices.

Experts Opinion

In terms of the research, J'son & Partners Consulting’s specialists have surveyed TOP 5 market players on the Russian Fixed BBA to the Internet Market and found out their opinion regarding key trends in the nearest future.

– What trends will be taken place on the Russian Fixed BBA Market in 2015 – 2016?

This Information Note is Prepared by J’son & Partners Consulting, We strive to provide factual and prognostic data that fully reflect the situation and are available to us before issuing the material. J’son & Partners Consulting reserves the right to revise the data after publication of new official information by the market players.